WEBVTT - Tariffs May Cause Pricing Premiums For US-Made Steel: Dudas 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:33.680 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:33.760 --> 0:00:37.519 we may hear more from President Trump this week about 0:00:37.600 --> 0:00:42.000 those aluminum and steel tariffs that he was talking about, 0:00:42.040 --> 0:00:46.760 which could end up being uh the maximum that any 0:00:46.800 --> 0:00:51.839 of his advisers recommended tariff on steel imports. Here to 0:00:51.920 --> 0:00:55.440 kind of look at what the possible implications of this 0:00:55.640 --> 0:00:58.920 are is Mike dudas partner and Medals and Mining analysts 0:00:58.920 --> 0:01:02.040 for Vertical Research Partners. He joins us here in eleven 0:01:02.080 --> 0:01:05.720 three oh studios today, so we're very happy to see you. Mike. 0:01:06.000 --> 0:01:10.800 Just walk us through what a twent tariff on steel 0:01:10.840 --> 0:01:14.880 and a ten percent tariff on aluminum would do. So 0:01:15.120 --> 0:01:17.800 I think when you think of the big picture, it 0:01:17.920 --> 0:01:21.800 will increase steel prices and aluminum prices, but you'll also 0:01:21.840 --> 0:01:25.639 see dynamics where there may be an oversupply of steel 0:01:25.680 --> 0:01:27.800 or aluminum saying the Pacific where a lot of the 0:01:27.840 --> 0:01:31.760 excess production of steel aluminum occur, and a shortage in 0:01:31.800 --> 0:01:33.720 the you know, this part of the market, the US, 0:01:33.800 --> 0:01:36.280 you know, North America, South American market, which could lead 0:01:36.319 --> 0:01:39.679 to higher premiums for users of US and aluminium steel 0:01:39.920 --> 0:01:42.840 as opposed to um you know, and and maybe a 0:01:42.840 --> 0:01:45.440 lower premium overseas. But generally it's going to raise prices, 0:01:45.440 --> 0:01:48.440 could even raise more for customers of US medals. But 0:01:48.520 --> 0:01:51.400 could you just explain what you're talking about? In other words, 0:01:51.680 --> 0:01:55.720 it'll be uh more expensive for people in the US 0:01:55.880 --> 0:02:00.120 to buy steel and aluminum. It certainly could be. So 0:02:00.360 --> 0:02:04.080 most of the excess steel is produced outside the United States, 0:02:04.080 --> 0:02:08.520 primarily in Asia. So as tariffs of of steel and 0:02:08.639 --> 0:02:11.760 limits of steel coming into this country, that's gonna lead 0:02:11.960 --> 0:02:14.280 probably for less steel to come in here from Asia. 0:02:14.280 --> 0:02:16.799 It's gonna be more supply less demand in Asia and 0:02:16.840 --> 0:02:19.320 will be more demand less supply, say here in US 0:02:19.400 --> 0:02:22.720 North America, which could lead to uh some pricing dynamics 0:02:22.760 --> 0:02:26.959 as well if timber cent numbers are what's going to 0:02:27.000 --> 0:02:30.240 be recommended and go through. So so if you are 0:02:30.360 --> 0:02:33.120 and there was this interesting story about this because of 0:02:33.160 --> 0:02:36.399 course there are many steel companies that have operations in Ohio, 0:02:37.120 --> 0:02:41.000 but there are also many companies in Ohio that, as 0:02:41.040 --> 0:02:44.960 you say, use steel and aluminum as an input. And 0:02:45.040 --> 0:02:49.400 because the price is set globally rather than locally, is 0:02:49.440 --> 0:02:53.160 saying that if you're a fabricator for the aerospace, the automotive, 0:02:53.280 --> 0:02:56.800 or another industry that's similar, you're gonna end up having 0:02:56.840 --> 0:03:00.200 to pay higher prices for the very products that you 0:03:00.360 --> 0:03:04.920 then make in the United States. Correct Now, some products 0:03:04.919 --> 0:03:07.519 are more intense or less intense than a certain steel 0:03:07.600 --> 0:03:10.639 or aluminum or all the different contents. Even automobiles have 0:03:10.720 --> 0:03:13.680 been moving away from steel in their bodies towards aluminum. 0:03:13.919 --> 0:03:17.120 But that's that's gonna be. That's a fair observation, especially 0:03:18.000 --> 0:03:21.040 with the economy. Even before these tariff and the discussions 0:03:21.040 --> 0:03:23.200 were announced, and President Trump mentioned that a couple of 0:03:23.240 --> 0:03:27.239 days ago, you know, prices were starting to improve, expectations, demands, 0:03:27.280 --> 0:03:30.040 supply was looking pretty good. So this gives a boost 0:03:30.040 --> 0:03:33.240 for that. But yes, there's a lot more consumers of 0:03:33.400 --> 0:03:36.200 steel and other products and other products that are going 0:03:36.280 --> 0:03:40.200 to be impacted by right, because I think that's like 0:03:40.320 --> 0:03:44.600 one there's estimates, I think one million workers around across 0:03:44.600 --> 0:03:48.120 the United States work in industries that make products from 0:03:48.120 --> 0:03:51.640 steel and aluminum, and there are about eighty thousand workers 0:03:52.400 --> 0:03:55.720 at steel plants. So that has been an argument used 0:03:55.760 --> 0:03:59.640 for decades about you know, free trade and and you know, 0:04:00.000 --> 0:04:02.520 relative it's fair or free trade, and certainly from a 0:04:02.560 --> 0:04:06.280 political aspect, and what President Trump got helped elected in 0:04:06.280 --> 0:04:09.600 that part of the country, and his Commerce Secretary will Burross, 0:04:09.600 --> 0:04:12.400 who was intimately well known in the steel and the 0:04:12.480 --> 0:04:15.880 coal industries. I don't think it's that surprising to get 0:04:15.920 --> 0:04:18.440 this type of announcement, but maybe the number was a 0:04:18.480 --> 0:04:20.840 bit shocking. But he is a dealmaker, So maybe you 0:04:20.880 --> 0:04:23.159 start here and work your way to something a little 0:04:23.160 --> 0:04:25.760 bit more ameliorative to everyone else. Just real quick, how 0:04:25.839 --> 0:04:29.640 much good prices increase. So depending on products, you could 0:04:29.680 --> 0:04:33.839 see you flat roll rebar to this point, you could 0:04:33.839 --> 0:04:39.080 see pops in certain areas. Now there could be other 0:04:39.160 --> 0:04:41.280 aspects around the world where kind of ameliorates, but you're 0:04:41.279 --> 0:04:43.080 gonna you could see some, you know, some pretty decent 0:04:43.080 --> 0:04:47.080 pricing pops going forward. One other area that I didn't 0:04:47.120 --> 0:04:49.600 want to hit with you was gold because there's been 0:04:49.600 --> 0:04:52.560 a big question about whether this is truly acting as 0:04:52.560 --> 0:04:55.520 an inflation hedge. What what is gold right now and 0:04:55.560 --> 0:05:01.760 why is it underperformed with some people thought it's not bitcoin. Okay, 0:05:01.920 --> 0:05:04.080 if you make it smaller and just call it gold 0:05:04.240 --> 0:05:06.240 did go very good. Yeah, I'm surprised that hasn't even 0:05:06.360 --> 0:05:09.839 put on exchange yet. So um, yeah, I think it's interesting. 0:05:09.880 --> 0:05:14.200 Gold has been relatively holding its value over the past 0:05:14.240 --> 0:05:16.080 several months. It's been in a kind of a narrow 0:05:16.080 --> 0:05:21.279 trading range. I think it's starting to sniff a little 0:05:21.320 --> 0:05:23.839 bit of inflation expectations rising. I think we've seen that 0:05:23.880 --> 0:05:26.560 in the bond market. I think we've seen that from 0:05:26.640 --> 0:05:29.760 some of the policies that we're seeing, and that is 0:05:29.760 --> 0:05:32.440 starting to creep into I think support for gold. So 0:05:32.560 --> 0:05:35.280 I think from the supply demand balance, there's definitely much 0:05:35.320 --> 0:05:38.359 better demand for gold elsewhere like in China and India, 0:05:38.680 --> 0:05:41.120 and supplies coming off because we've had such lack of 0:05:41.160 --> 0:05:43.440 capital spending the last five years. But I do think 0:05:43.480 --> 0:05:45.919 that gold starting to with a little bit of inflation 0:05:45.960 --> 0:05:48.200 and starting to support a support prices here, and I 0:05:48.200 --> 0:05:50.120 think you'll see that going forward as well. If you're 0:05:50.120 --> 0:05:54.040 an investor and you're thinking about these kinds of metals 0:05:54.520 --> 0:05:57.159 as an investment, would you be looking to a company 0:05:57.200 --> 0:06:00.320 that that doesn't do gold exclusively, and I'm thinking, for example, 0:06:00.320 --> 0:06:02.680 of Freeport Macmuran. In other words, you get copper, but 0:06:02.800 --> 0:06:06.080 you awsome mind Goal rather than gold Court for example. 0:06:06.640 --> 0:06:09.400 Excellent question because some of the pure gold names have 0:06:09.520 --> 0:06:11.760 not performed as well as some of the diverse mind 0:06:11.800 --> 0:06:15.240 mires like a Glencore or the Freeport for example, which 0:06:15.240 --> 0:06:17.680 certainly has the impact of what's going on in Indonesia. 0:06:18.000 --> 0:06:21.640 So in a broad based economic metal commodity recovery, which 0:06:21.640 --> 0:06:26.560 we are anticipating in metals like Goal, copper, zinc, lead, aluminum, 0:06:27.040 --> 0:06:28.440 some of the verse fine miners might be a good 0:06:28.440 --> 0:06:30.080 place to be in and one of our recommended names 0:06:30.080 --> 0:06:33.599 is Freeport. On that basis, did you happen to have 0:06:33.839 --> 0:06:37.000 any thoughts about the report last week that Apple is 0:06:37.040 --> 0:06:43.799 looking to to UH access cobalt directly in order to 0:06:43.960 --> 0:06:47.000 have that supply for their their iPhones and their their devices, 0:06:47.040 --> 0:06:49.479 for their batteries and so on. So over cycles, we 0:06:49.520 --> 0:06:52.680 remember companies want to access some of the rare earth minerals, 0:06:52.680 --> 0:06:55.719 remember that several years ago and trying to get direct 0:06:55.880 --> 0:06:58.479 um the auto companies, remember still water mining back in 0:06:58.480 --> 0:07:03.080 the day palladium in Montana. Let's go correct direct contract, 0:07:03.160 --> 0:07:07.560 so it's not unprecedented. And if an electric battery electric 0:07:07.640 --> 0:07:09.880 vehicle world, as I'm sure you're quite aware of, cold 0:07:09.880 --> 0:07:12.200 book would be very very important. So I can see 0:07:12.200 --> 0:07:14.440 a company like Apple wanting to do that. Now, how 0:07:14.520 --> 0:07:17.520 you do that and what countries you deal with and 0:07:17.600 --> 0:07:21.840 how you access that's for another discussion. Uh. Just before 0:07:22.040 --> 0:07:24.440 you go, I wish to get your thoughts on the 0:07:24.480 --> 0:07:26.800 dollar and how much you're really paying attention to it 0:07:26.840 --> 0:07:29.840 with respect to commodity prices. So you have to pay 0:07:29.880 --> 0:07:32.520 attention to it if you're trying to, UM, get a 0:07:32.520 --> 0:07:34.800 sense of where many of these commodities, especially the metals, 0:07:34.800 --> 0:07:37.960 are going. The dollar has Everybody has been calling for 0:07:37.960 --> 0:07:40.400 a bullish moving a dollar in two thousand eighteen, they 0:07:40.400 --> 0:07:43.080 called for a bullish moving seventeen. It really hasn't occurred, 0:07:43.240 --> 0:07:46.160 and that's been very supportive I think across the board 0:07:46.160 --> 0:07:48.800 for many of the commodities has been supported for oil 0:07:48.840 --> 0:07:53.360 as well. Um, you're I think you could see maybe 0:07:53.360 --> 0:07:55.239 a little bit of us if the bond market starts 0:07:55.280 --> 0:07:56.680 to you know, sell off and you get a little 0:07:56.680 --> 0:07:58.520 bit higher rates, that couldn't get a bid to the dollar, 0:07:58.680 --> 0:08:01.840 but relative to the euro weal to yeah, and Lada 0:08:02.040 --> 0:08:04.040 has not acted as well. So I do think the 0:08:04.080 --> 0:08:06.960 path of leafs resistance right now continues to be lower, 0:08:07.480 --> 0:08:09.800 but we could see some strength if the bomb market 0:08:09.800 --> 0:08:11.760 starts to get funky on us. All right, well, we're 0:08:11.760 --> 0:08:13.360 gonna leave it there, but thanks very much for coming 0:08:13.400 --> 0:08:15.400 in and spending time with us. Mike Dodas is the 0:08:15.680 --> 0:08:20.120 partner and medals and mining analysts for Vertical Research Partners. 0:08:34.320 --> 0:08:38.640 Companies are buying back their shares at the fastest pace 0:08:38.840 --> 0:08:43.000 in the credit cycle. That is according to fourth quarter 0:08:43.240 --> 0:08:46.600 data compiled by Brian Reynolds, who is an asset class 0:08:46.640 --> 0:08:50.520 strategist focusing on US cash equities for Kindeord Genuity Corporation 0:08:50.840 --> 0:08:53.760 in New York. Brian joins us, now, thank you so 0:08:53.840 --> 0:08:56.680 much for being with us. I just want to start 0:08:56.800 --> 0:09:00.560 with the actual data. What are you finding, uh and 0:09:00.600 --> 0:09:03.559 why were you looking at this particular data so closely? 0:09:04.720 --> 0:09:07.200 Well throughout this boom market, by backs have been the 0:09:07.240 --> 0:09:10.760 main source of higher stock prices. Investors collectively have done 0:09:10.800 --> 0:09:13.840 nothing during this bull market. Some people put money into 0:09:13.880 --> 0:09:16.679 et f s, but big investors like pensions have been 0:09:16.720 --> 0:09:19.600 selling stocks so that's why I focus on the bio backs. 0:09:20.200 --> 0:09:22.520 What I look at is on Bloomberg, I add up 0:09:22.520 --> 0:09:25.319 the share count data of companies in the SMP five 0:09:25.400 --> 0:09:28.040 hundred and I've tried to use that data to figure 0:09:28.040 --> 0:09:31.200 out how much stock they've taken out. And it may 0:09:31.200 --> 0:09:33.520 be that the fourth quarters are a record for this 0:09:33.640 --> 0:09:37.040 cycle in buy backs, and that partly explains why stock 0:09:37.080 --> 0:09:40.160 prices were so strong at the end of the year. Alright, 0:09:40.240 --> 0:09:43.959 so the data that you have out there, you're boosting 0:09:43.960 --> 0:09:47.160 your forecast for the fourth quarter share buybacks to a 0:09:47.240 --> 0:09:50.160 hundred and sixty five billion dollars that would exceed the 0:09:50.200 --> 0:09:52.800 one hundred and sixty one billion dollar high set for 0:09:52.840 --> 0:09:56.200 this cycle in the first quarter of twenty sixteen. Is 0:09:56.240 --> 0:10:00.440 this a bad thing? It depends on what's I frame. 0:10:00.679 --> 0:10:03.800 We're essentially leveraging up our economy to fund share buy 0:10:03.840 --> 0:10:06.360 backs to push stock prices up. So while this bull 0:10:06.400 --> 0:10:08.719 market goes on, it's a good thing. It results in 0:10:08.800 --> 0:10:12.080 higher stock prices. But eventually credit cycles end, and they 0:10:12.120 --> 0:10:14.360 always end badly. I don't think this one ends for 0:10:14.440 --> 0:10:16.920 another three to five years, but when they end, you 0:10:16.960 --> 0:10:19.280 get disasters like you start in two thousand eight and 0:10:19.360 --> 0:10:22.320 three thousand. Hey, Brian, just a little bit about the 0:10:22.360 --> 0:10:26.760 sort of nature of of stock buy backs, because you know, 0:10:26.960 --> 0:10:30.079 you shrink the float. We got that that that typically 0:10:30.160 --> 0:10:32.480 is one of the things that you know the company 0:10:32.559 --> 0:10:34.960 is looking to increase its earnings. It's great to shrink 0:10:35.000 --> 0:10:37.560 the float because that way, uh, it looks like they're 0:10:37.600 --> 0:10:41.640 making more money. But over time is are there specific 0:10:41.760 --> 0:10:44.920 rules that investors can follow that they could use that 0:10:45.000 --> 0:10:49.280 stock buy back perspective in order to make money. Well, 0:10:49.360 --> 0:10:51.360 I think the important thing to remember is that this 0:10:51.440 --> 0:10:53.839 list the overall level of stock prices, so like the 0:10:54.000 --> 0:10:56.839 S and P five hundred, but in terms of individual 0:10:56.920 --> 0:10:59.760 sectors or companies, it can be random. For example, g 0:11:00.200 --> 0:11:02.160 and IBM both brought back a lot of stock and 0:11:02.200 --> 0:11:06.080 they've under perform as investors took that money and reallocated 0:11:06.080 --> 0:11:09.560 it towards growth. So it's an overall guide, but not 0:11:09.640 --> 0:11:12.440 a very specific one. Okay, So then should you should 0:11:12.440 --> 0:11:16.760 you combine it perhaps with something like growing free cash flow? 0:11:17.280 --> 0:11:19.800 And I tipped my hat to Charlie Biederman of trim 0:11:19.840 --> 0:11:23.760 Tabs Investment Research, who helped pioneer this idea. If you 0:11:23.800 --> 0:11:28.360 can find companies where they're increasing free cash flow and 0:11:28.480 --> 0:11:33.280 buying back their stock. Would that be a good combo. Well, our, 0:11:33.720 --> 0:11:37.120 that's that's one idea our chief strategist Tony Dwyer, who 0:11:37.160 --> 0:11:40.680 you all know, he's a favor of more economically sensitive 0:11:40.920 --> 0:11:44.160 names at this point, more growthier names, especially in the 0:11:44.200 --> 0:11:46.840 small midcamp area. That's probably where the money is going 0:11:46.880 --> 0:11:49.520 to be reallocated within the next three or four months, 0:11:49.800 --> 0:11:53.960 and then after that we'll talk about another reallocation. So, Brian, 0:11:54.160 --> 0:11:57.280 I think it also matters where companies get the money 0:11:57.320 --> 0:12:00.960 to finance share buybacks. A lot of it is financed 0:12:00.960 --> 0:12:03.120 with debt. But could it be that in the fourth 0:12:03.200 --> 0:12:06.960 quarter there was just more business confidence, much more cash 0:12:07.000 --> 0:12:11.680 coming in through the door that companies were looking to deploy. Well, 0:12:11.720 --> 0:12:13.960 profitability was up, so that helps a little bit. But 0:12:14.040 --> 0:12:16.600 most of the profits go to plant equipment spending, which, 0:12:16.800 --> 0:12:19.920 as Tony Dwyer also points out, is beginning to accelerate, 0:12:19.960 --> 0:12:23.040 so the cash flow from business tends to get reinvested 0:12:23.040 --> 0:12:26.280 in business. Most of the buy backs are funded with debt, 0:12:26.800 --> 0:12:28.680 although now we've got a kicker in the form of 0:12:28.679 --> 0:12:31.240 repatriation from the tax code, so there's likely going to 0:12:31.240 --> 0:12:34.080 be more buy backs ahead. In fact, announced by backs, 0:12:34.160 --> 0:12:37.679 in other words, upcoming ones maybe setting a record this quarter. 0:12:38.400 --> 0:12:40.920 But the buy backs that have done with debt, will 0:12:40.960 --> 0:12:45.240 those be limited because the value of issuing debt is 0:12:45.320 --> 0:12:49.960 going to go down because the deductibility rules have been changed. 0:12:51.320 --> 0:12:54.480 The demand for corporate bonds is unchanged by tax reform. 0:12:54.520 --> 0:12:57.680 That's our nation's public pensions and insurance companies putting money 0:12:57.679 --> 0:12:59.880 to work, so their appetite for credit is as a 0:13:00.040 --> 0:13:03.680 ravenous as Ever, what this doesn't cut the supply of credit. 0:13:03.920 --> 0:13:06.840 Companies want to issue fewer debt, fewer amounts of debt, 0:13:06.920 --> 0:13:08.880 and that means there's more shadow banking that's going to 0:13:08.960 --> 0:13:11.600 fill that void. And shadow banking, the more of it 0:13:11.679 --> 0:13:14.480 you have, the higher the stock prices go until it 0:13:14.520 --> 0:13:19.200 gets thrown into reverse two years after the Yel curving birds. So, Brian, 0:13:19.200 --> 0:13:22.959 can you give us take us back in history before 0:13:23.160 --> 0:13:28.160 the two thousand and eight financial crisis. What was the 0:13:28.200 --> 0:13:31.240 cycle of shared buy backs then and kind of serve 0:13:31.320 --> 0:13:34.480 as a guide for what we're seeing now. It looks 0:13:34.600 --> 0:13:37.320 very similar to this cycle, except that cycle was shorter. 0:13:37.400 --> 0:13:40.120 It was only four years because the Yel curve inverted 0:13:40.160 --> 0:13:43.160 quickly in two thousand five, bringing on the crisis in 0:13:43.200 --> 0:13:45.319 two thousand seven, but it was much the same with 0:13:45.400 --> 0:13:48.920 companies buying back stock using borrowed money, while investors kind 0:13:48.920 --> 0:13:51.200 of sat on their hands until the last two years 0:13:51.200 --> 0:13:54.439 of the bull market. So in other words, I guess 0:13:54.559 --> 0:13:58.199 what I'm trying to wonder is are we going to 0:13:58.280 --> 0:14:00.720 look back and say that companies bar owed money to 0:14:00.840 --> 0:14:04.760 buy their shares at the highest possible valuations, which was 0:14:04.800 --> 0:14:09.440 basically throwing it away. Well, the highest possible evaluation that 0:14:09.480 --> 0:14:11.800 we did was in the nineteen nineties, which was throwing 0:14:11.800 --> 0:14:14.160 it away. The last time was less of a higher 0:14:14.200 --> 0:14:17.680 valuation than we're at a lower valuation now. But essentially, yes, 0:14:17.760 --> 0:14:20.640 we are leveraging up our economy to push up stock prices, 0:14:20.680 --> 0:14:24.280 just none of the high valuations yet. And Brian, just quickly, 0:14:24.320 --> 0:14:26.520 I mean, could this be changed, Let's say, if there 0:14:26.520 --> 0:14:28.800 were new rules in the county, because right now, you know, 0:14:28.840 --> 0:14:32.800 spending money on research and development doesn't necessarily benefit the 0:14:32.840 --> 0:14:37.720 way you look at the balance sheet. Well, this is 0:14:37.800 --> 0:14:41.320 driven by our public pensions who really aren't impacted by 0:14:41.400 --> 0:14:43.800 rules and regulations. They haven't need to make seven and 0:14:43.800 --> 0:14:46.200 a half percent, and they're gonna lend money to anybody 0:14:46.200 --> 0:14:48.640 that wants it. So maybe if the margins and rules 0:14:48.640 --> 0:14:51.240 and regulations could be changed. But unless we find a 0:14:51.240 --> 0:14:54.800 way to regulate public pensions and they think their sovereigns, 0:14:54.840 --> 0:14:57.400 so there really isn't. This cycle is probably going to 0:14:57.480 --> 0:14:59.520 go on again. All Right, We're gonna leave it there. 0:14:59.560 --> 0:15:03.440 Brian an Old's asset class strategist US Cash Equities for 0:15:03.560 --> 0:15:21.320 it can accord a genuity. Saturday was the day that 0:15:21.400 --> 0:15:25.480 we received Warren Buffett's annual letter, but this time around 0:15:26.120 --> 0:15:29.120 it was shorter than usual. It didn't have a ton 0:15:29.200 --> 0:15:32.640 of huge ideas, but if you dig beneath the surface, 0:15:32.720 --> 0:15:35.720 it said quite a bit. Katherine Chilinski joins US now. 0:15:35.760 --> 0:15:39.000 She's US finance reporter for Bloomberg News who spent her 0:15:39.120 --> 0:15:43.120 entire weekend eating pizza in the office while covering this letter. 0:15:43.160 --> 0:15:45.960 Thank you so much for being here. So, uh, what 0:15:46.040 --> 0:15:48.040 stood out to me? And then I want to ask 0:15:48.160 --> 0:15:50.640 if if this sort of was your big takeaway was 0:15:50.720 --> 0:15:55.480 that Berkshire Hathaway his company really can't find a good 0:15:55.560 --> 0:15:59.080 acquisition target. They called it at a drought. I mean, 0:15:59.200 --> 0:16:01.760 last year was in a great year for them finding 0:16:01.760 --> 0:16:04.960 deals that they liked. Buffett clarified that like a lot 0:16:04.960 --> 0:16:08.320 of it was prices that prices for businesses we're reaching 0:16:08.360 --> 0:16:12.960 all time highs and um, the availability of cheap debt 0:16:13.000 --> 0:16:15.720 has made it just even more hard to actually find 0:16:15.760 --> 0:16:18.560 what they've been looking for. Let's talk about the company 0:16:18.560 --> 0:16:21.960 Berkshire Hathway. It is an insurance business as much as 0:16:22.000 --> 0:16:25.320 anything else. Correct now it's actually tilted a lot towards 0:16:25.560 --> 0:16:29.200 UM kind of non insurance operators manufacturing, but insurance is 0:16:29.280 --> 0:16:31.040 a good chunk of it. And we saw in this 0:16:31.080 --> 0:16:34.920 reason earning. Sometimes when insurance goes bad, like with the hurricanes, UM, 0:16:34.960 --> 0:16:37.320 it can, it can really hurt your earnings of it. 0:16:37.840 --> 0:16:41.760 So if they're shifting their attention to what industrial companies 0:16:41.800 --> 0:16:46.120 with the purchase previously of Burlington Northern Santa fe uh, 0:16:46.600 --> 0:16:50.440 the Precision cast Parts was a huge one he struck recently. UM. 0:16:50.480 --> 0:16:53.320 He praised that CEO Mark Donegan in the letter, which 0:16:53.360 --> 0:16:55.440 is I think that's always sort of telling you wanna 0:16:55.680 --> 0:16:58.320 you know. UM, a couple of managers often get a 0:16:58.360 --> 0:17:01.800 heaping of praise over in the letter, and Mark Donnegan 0:17:01.920 --> 0:17:04.959 was a huge one. So he also has a record 0:17:05.000 --> 0:17:08.360 cash bile of a hundred and sixteen billion dollars right 0:17:08.400 --> 0:17:12.040 now largely held in T bills. This is burning a 0:17:12.080 --> 0:17:14.679 hole in their pocket. They want to put it to work. 0:17:15.040 --> 0:17:18.560 The fact that they did say there was this dearth 0:17:18.600 --> 0:17:23.400 of opportunities, does that indicate something bigger about the markets 0:17:23.520 --> 0:17:27.280 and kind of perhaps that Warren Buffett sees things as 0:17:27.600 --> 0:17:30.719 vastly overvalued. I mean, I think you can sort of 0:17:31.200 --> 0:17:34.480 deduce that. Yeah, it means things aren't great. I mean, 0:17:34.520 --> 0:17:37.840 Buffett does tend to play best when things are are faltering, 0:17:37.920 --> 0:17:40.080 and he can kind of step in with his UM 0:17:40.119 --> 0:17:43.720 investing knowledge and provide some lifelines. I think he did 0:17:43.760 --> 0:17:45.840 say you know that he wants to make one or 0:17:45.840 --> 0:17:48.920 more huge acquisitions. It's also a thing of he really 0:17:48.960 --> 0:17:53.239 needs large acquisitions to really bolster earnings because Berkshire has 0:17:53.280 --> 0:17:57.679 gotten so huge, although some of those attempts have gotten 0:17:57.720 --> 0:18:00.480 stymied in the past. Right last year it was kind 0:18:00.480 --> 0:18:03.480 of it was it was rough. Kraft Heinz tried to 0:18:03.520 --> 0:18:06.040 approach you know, Lever and that sort of fell apart. 0:18:06.080 --> 0:18:08.600 They didn't want to do a hostile takeover Berkshire's UM 0:18:08.680 --> 0:18:12.160 pretty um, they don't like those in general. And then 0:18:12.280 --> 0:18:15.640 um they also bid for an energy company and that 0:18:15.720 --> 0:18:18.320 they were bested in that attempt and it was a 0:18:18.400 --> 0:18:22.119 rough gear. Talk about healthcare for just a moment, because 0:18:22.200 --> 0:18:26.119 of course, UH, JP Morgan Chase, as well as Amazon 0:18:26.440 --> 0:18:30.840 and Berkshire Hathway have all spoken about and as yet 0:18:31.160 --> 0:18:37.240 unspecified healthcare initiative. Todd Combs, who is uh one of 0:18:37.280 --> 0:18:39.760 the top people at Berkshire Hathaway, is also on the 0:18:39.800 --> 0:18:42.840 board of JP Morgan and UM, one if you offer, 0:18:42.880 --> 0:18:44.720 is there any idea of what it is they're going 0:18:44.760 --> 0:18:48.000 to be talking about? Buffett talked about it a little 0:18:48.000 --> 0:18:50.360 this morning, and I think it's interesting. I mean, Todd Combs, 0:18:50.400 --> 0:18:53.800 he's one of his Buffett's investing deputies, but he's gotten 0:18:53.800 --> 0:18:55.880 a lot of power with this healthcare adventure. I mean 0:18:55.920 --> 0:18:58.399 he's been, um, you know, part of the one of 0:18:58.440 --> 0:19:01.560 the people tasked was sort of helping create it. And um, 0:19:01.600 --> 0:19:04.600 even Buffett himself said today that, you know, um, Buffett 0:19:04.600 --> 0:19:07.720 agrees that this is a huge cost problem that they 0:19:07.720 --> 0:19:11.400 need to tackle, but even Todd was working really hard 0:19:11.400 --> 0:19:13.359 at kind of figuring out ways they could do it. 0:19:13.440 --> 0:19:15.320 They still don't have a CEO for that venture, so 0:19:15.359 --> 0:19:17.439 I think that will be really interesting to sort of 0:19:17.480 --> 0:19:20.199 see who will actually sort of take charge. Well, it 0:19:20.240 --> 0:19:22.720 was interesting to actually hear what warm Buffett had to 0:19:22.720 --> 0:19:25.879 say on this. He said, uh, that there certainly is 0:19:26.080 --> 0:19:28.800 pricing power when you're this big, but that was just 0:19:28.840 --> 0:19:31.320 a little bit of it. That this healthcare venture would 0:19:31.320 --> 0:19:34.199 go much further. What does that mean? I thought it 0:19:34.240 --> 0:19:36.080 was interesting. I mean, he said, you know, yeah, it 0:19:36.119 --> 0:19:38.840 might be kind of easy to shave off three or 0:19:38.840 --> 0:19:41.800 four percent of costs in this in this thing because 0:19:41.840 --> 0:19:44.280 of their negotiating power, but they want to do more. 0:19:44.400 --> 0:19:48.159 And I think that speaks to the the desire for 0:19:48.280 --> 0:19:51.880 Buffett and these two other large companies to really sort 0:19:51.960 --> 0:19:55.479 of do more of a systemic kind of overram. I mean, 0:19:55.480 --> 0:19:57.880 they said it will focus on their companies to begin with, 0:19:58.000 --> 0:19:59.960 but there's kind of an idea that this is going 0:20:00.040 --> 0:20:02.639 to spread much larger. To the extent of like how 0:20:02.680 --> 0:20:05.719 it will, we're not totally sure yet. Also, the company 0:20:05.720 --> 0:20:08.200 has been behind the shares of Apple while it's been 0:20:08.240 --> 0:20:11.760 selling the shares of IBM. It's kind of a whole 0:20:11.800 --> 0:20:14.680 new world for a Buffet, right. He stood by IBM 0:20:14.720 --> 0:20:17.119 for a long time, even when people, I think we're 0:20:17.160 --> 0:20:20.359 starting to question why. Um, he noted today it was 0:20:20.520 --> 0:20:24.040 you know it wasn't a great idea, and yeah, Apple 0:20:24.080 --> 0:20:26.120 has continued to be kind of one of their favorite 0:20:26.119 --> 0:20:28.919 bets over the past year. Um It'll be interesting to 0:20:28.960 --> 0:20:32.399 see whether that kind of continues or if um or 0:20:32.440 --> 0:20:34.320 if they kind of go somewhere else with this new 0:20:34.359 --> 0:20:37.119 sort of technology. Bent. Thank you so much for joining 0:20:37.200 --> 0:20:39.080 us and for following this, and I'm sure we'll be 0:20:39.119 --> 0:20:41.440 talking more about it in the days become Katherine Chilensky, 0:20:41.800 --> 0:20:46.520 US finance reporter for Bloomberg News who will be heading 0:20:46.520 --> 0:20:49.720 out to Omahash shortly. Thank you so much for being 0:20:49.880 --> 0:20:52.000 with us. And of course, Pim, I would be remiss 0:20:52.040 --> 0:20:55.160 and not mentioning at some point airlines since I know 0:20:55.840 --> 0:21:00.800 you receive airlines weekly and enjoy He likes airlines. He 0:21:00.880 --> 0:21:04.640 does like airlines. Who do they make money? But to 0:21:04.720 --> 0:21:09.360 potentially buy one, potentially own one, uh interesting buff air 0:21:10.000 --> 0:21:12.320 buff air I think a lot of people would a 0:21:12.720 --> 0:21:17.280 diet coke and everything would be economy class if if 0:21:17.280 --> 0:21:21.320 that's that would be a luxury on the person. We 0:21:21.400 --> 0:21:25.360 will we will continue discussing offline what buffet airlines would 0:21:25.400 --> 0:21:44.760 look like. Jijing Ping's decision to step aside from China's 0:21:44.800 --> 0:21:48.760 typical presidential term limits is making it seem as though 0:21:48.800 --> 0:21:53.320 he might just indefinitely be in charge of China. And 0:21:53.480 --> 0:21:56.280 here to tell us more about the Chinese political world 0:21:56.359 --> 0:21:58.720 and what it means for all of us is Mike McDonough. 0:21:58.800 --> 0:22:01.720 He is of Bloomberg Anonymous, and he joins us here 0:22:01.720 --> 0:22:03.960 in our eleven three oh studios. Mike, So, what about 0:22:04.040 --> 0:22:10.160 this idea that the Ping demonstrating a willingness to sidestep 0:22:10.600 --> 0:22:14.879 tradition when it comes to Chinese? Uh, you know, the 0:22:15.000 --> 0:22:17.440 idea of who rules China and for how long? Well, 0:22:17.640 --> 0:22:20.680 this isn't a new idea of so to say, Um, 0:22:20.720 --> 0:22:23.479 there was the idea existed when they were having their 0:22:23.560 --> 0:22:25.760 last big meeting that there was going to be some 0:22:25.800 --> 0:22:29.640 signals that he would try to remain in power beyond 0:22:29.920 --> 0:22:34.560 five years. I think that actually many people had expected this. Uh. 0:22:34.640 --> 0:22:37.760 I think the timing of this particular announcement has surprised 0:22:37.800 --> 0:22:40.000